GENIUS Act Faces Bipartisan Criticism Over Stablecoin Oversight Gaps

Wall Street banks and consumer advocates have formed an unlikely alliance to challenge the GENIUS Act, citing concerns over regulatory loopholes for stablecoin issuers. The coalition argues the legislation creates an uneven playing field by allowing crypto firms to circumvent state financial regulations while traditional banks remain tightly controlled.

A joint letter to U.S. senators highlights particular concern about Section 4.3 of the Act, which permits state-chartered uninsured banks to operate nationally without full regulatory oversight. This provision could enable stablecoin issuers to compete with traditional banks while avoiding comparable compliance burdens.

The banking industry warns of systemic risks, noting that stablecoin issuers could potentially undermine deposit bases and lending operations without offering equivalent consumer protections. While the Act prohibits issuers from paying interest directly, critics point out it fails to prevent affiliated entities from doing so—creating potential end-runs around the restriction.